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The elimination of cash may serve other purposes

by Communication Team | Mar 10, 2017

Bank_viewMany countries have recently increased their efforts to reduce the use of cash by promoting digital payment methods and imposing ever smaller withdrawal limits. To justify this move, governments usually state that cash is mainly used by criminals to anonymously finance illegal activities and that the elimination of physical money will help boost the economy.

From a logical standpoint however such explanations might be considered far-fetched. Criminals are highly unlikely to cease their illicit activities should cash disappear - they will simply seek other ways to carry out their transactions by using, for example, digital currencies that are rarely regulated and are frequently difficult to track (such as Bitcoin).

Cash’s demise would probably mostly benefit the Tax administration rather than the economy, but even that remains to be seen as many of the largest cases of tax fraud are not even carried out in cash leaving, once again, the most vulnerable to the mercy of the authorities. A fully digitalised system would especially benefit banks as they would finally be free to charge negative interest rates. At present, the currency circulating outside the financial system represents about 10% of the money supply in developed economies.  

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